Signature's ideal buyer? A foreign bank that preserves its independence

In its more than 16 years of existence, Signature Bank in New York has never bought another bank and only occasionally has it floated the idea of being acquired by a larger institution.

So it was a bit surprising to hear CEO Joseph DePaolo on Wednesday describe with such specificity the type of bank he would envision as being the ideal acquirer of the $41 billion-asset Signature.

Responding to a question at an investor conference in New York, DePaolo said that the ideal suitor would be a big foreign bank that would preserve what he has built since co-founding Signature in 2001. Signature has thrived largely by hiring teams of bankers with well-established client relationships, and DePaolo is skeptical that a U.S.-based bank would keep that model intact.

“There’s no bank in the U.S. that could run the institution the way we do — by team, and not by silo,” DePaolo said in an interview after the conference, which was hosted by Barclays. “They would not be able to keep the teams, and they would destroy what we have created.”

"For me to say we’re not for sale or we’ll never buy, it’s not really true. There’s always a deal to be made," said Signature CEO Joseph DePaolo.

That is not to suggest that Signature is on the block. But for a company that has for years prided itself on its ability to grow organically, the comments introduce at least the whiff of possibility that M&A could be in its future.

Indeed, during a question-and-answer session with analysts Wednesday, DePaolo even hinted that Signature might consider making an acquisition. “It’s always an option,” he said, naming Chicago and San Francisco as cities where it might want to expand.

Signature has more than doubled its assets over the last five years primarily by luring teams of bankers away from larger institutions. In late August, for instance, it acquired two new private banking teams from Citigroup and First Republic.

Signature’s model is based around the concept that well-run, midsize businesses value relationships above all else. “Privately held businesses do not make their decisions based on advertising; they make their decisions based on relationships,” DePaolo said in a 2014 interview with American Banker.

In the interview Wednesday, DePaolo said that Signature is no intention of changing its approach. “Organically is still the way to do it,” he said.

Still, there are a number of reasons why a sale could make sense for Signature. For one thing, it is fast approaching $50 billion of assets, the threshold at which banks are subject to more rigorous stress tests and heightened regulatory scrutiny.

Also, its loan portfolio remains heavily weighted toward commercial and multifamily real estate, and that is of concern to regulators who have been urging banks to limit their commercial real estate exposure.

“If you think about it from a big picture, them selling to a larger parent like an international parent would solve a lot of issues,” said Chris McGratty, an analyst with Keefe, Bruyette & Woods.

McGratty noted that Signature, with its concentration in New York commercial real estate, has been “very much on the radar” of federal regulators. Having a larger parent could also provide Signature with a stable funding base to expand into new markets.

“Frankly, they could be allowed to operate more freely” with a larger parent, McGratty said.

A foreign bank, in particular, would be an ideal suitor because it wouldn’t have the commercial specialties as Signature, and would be more likely “to leave it alone,” McGratty said. Unlike a large U.S. company, it likely wouldn’t focus on taking out costs and closing offices.

DePaolo declined to say whether Signature had been approached with a takeover offer. But there are nonetheless signs that foreign buyers are on the hunt.

Tokyo-based Mitsubishi UFJ, for instance, has said in recent years that it would like to acquire another U.S. bank —it already owns MUFG Union Bank in San Francisco — and take on big U.S. banks in commercial lending. Canadian banks have also been on a U.S. acquisition spree: CIBC in June bought PrivateBancorp in Chicago, and Royal Bank of Canada two years ago acquired City National in Los Angeles.

DePaolo said that the bank’s chairman, Scott Shay, once told him that a public company is a takeover target the day it goes public. Signature became a public company in March 2004.

“If someone makes you an offer, you have to bring it to your board,” DePaolo said. “So for me to say we’re not for sale or we’ll never buy, it’s not really true. There’s always a deal to be made.”